Nifty: Outlook For 2013

It’s that part of the year when it is time to discuss the outlook for the year ahead. We had last discussed the outlook for the Nifty on November 16. The index has appreciated by about 8% per cent since the previous update. A look at the weekly chart of the Nifty indicates that the trend is unmistakably up. The consistent sequence of higher highs and higher lows recorded since Dec.2011 is a positive sign.

As highlighted in the chart above, the red set of lines are in sync with the price. It’s interesting to note that the red line carries frequency of the price when placed at significant pivots.

More often than not, the price tends to run out of steam at the centre line or the median.  Even amidst a strong trending market, this medianline would at least act as temporary speed breaker before the price resumes the next segment of the uptrend. Given this backdrop, it would be reasonable to expect a rally to the centre line or the medianline and a conservative target of 6,670-6,700 looks achievable.

The ultimate objective of the price is to reach the upper parallel line of the trend channel. This works out to a target of 8,000+. But, please be reminded that we are working off the weekly chart and it may take several months or even years to reach this eventual target.

The stop loss, for those willing to play the waiting game for a target of 8,000 and beyond, should be placed below the swing low at 5,215. Those looking to participate in the rally to 6,670-6,700 may place the stop loss at 5,500. The uptrend and the prospects of a new highs in 2013 would be under threat if the Nifty falls below 5,500. Let’s talk about alternate scenarios as and when the need arises. AS long as 5,500 is intact, it makes sense to proceed with a positive bias.

The next question is which are the stocks / sectors that could propel the Nifty to new highs. As always, the bulk of the work has to be done by the banking and financial sector. We prefer public sector banks as they are likely to outperform their private sector peers in 2013. State Bank of India, Union Bank of India, Corporation Bank, Bank of India,  Punjab National Bank and Bank of Baroda are a few names that we like from the public sector space.

We wouldn’t be surprised if these PSU banks deliver 20%+ returns in 2013. Rural Electrification and Power Finance Corporation too deserve a place in the portfolio for someone looking at 20% returns. Apart from the banking and financial sector, the automobile sector too is likely to take a lead in propelling the Nifty to new highs.

We like stocks such as Tata Motors, Maruti Suzuki and Mahindra & Mahindra, in that order. We are also positively inclined towards the mid and small cap stocks. Companies such as Aurobindo Pharma (recommended earlier by us at Rs.130), Balkrishna Industries, Strides Arcolab, Sun Pharma, MRF and Dabur are a few names that come to mind readily.

Those with a higher risk appetite may consider Adhunik Metalliks, Jain Irrigation, SpiceJet and Suzlon. From the metals pack, we favor Hindalco, Tata Steel and Jindal Steel. Watch this space for updates on the metals pack.

(The standard disclosure and disclaimer applies. We may have already discussed these stocks with our clients and we may have exposures in the stocks discussed above. Consult your financial planner before making equity investment.  The recommendations featured above are based on Technical Analysis and not on fundamentals)